Linda Krull, an accounting professor at the University of Texas at Austin, found that current accounting rules on income taxes mean that a company that knows it's going to miss Wall Street's earnings expectations can plug the shortfall by increasing the amount of foreign-earned profits it reinvests abroad.

That's because earnings of a foreign subsidiary are usually only subject to U.S. taxes when they're brought back home.

The accounting exception on earnings kept abroad is "a potentially effective earnings management tool," said Krull, who examined the books of 267 U.S.-based multinationals from 1993 to 1999.

Management has a lot of discretion in determining how much to reinvest abroad, and companies rarely disclose much about their foreign operations.

Accounting specialist Jack Ciesielski said current disclosures on untaxed foreign earnings are "sketchy at best."

Ciesielski, who publishes The Analyst's Accounting Observer newsletter in Baltimore, recently has pored over the financial footnotes of the Standard & Poor's 500 companies. He found only 190 of them disclosed annually, over the last four years, the amount of untaxed foreign earnings they had built up.

The limited disclosures offer a peek at just how important overseas operations have become to Corporate America's well-being.

According to Ciesielski, 250 companies within the S&P 500 index recorded a total of $511.2 billion in unrepatriated foreign earnings as of the end of last year - about 20 percent of their income from continuing operations. Companies with the largest amounts are mostly health care, information technology, consumer, industrial and energy names.

Meanwhile, accounting rule makers are heeding concerns about the potential for earnings manipulation, though they have ruled out eliminating the accounting exemption altogether, at least in the near term.

Instead, the Financial Accounting Standards Board and its London-based counterpart, the International Accounting Standards Board, decided at an October joint meeting that both boards should evaluate whether multinationals should make more disclosures about unremitted foreign earnings.

The rule makers endorsed the argument from business that it would be too complex to do the calculation.

An accounting-rule change forcing companies to book taxes for foreign profits could have led to "a major hit to earnings" for many multinationals, said Robert Willens, a tax and accounting expert at Lehman Brothers Inc.

Citigroup Inc., for instance, said in its 2003 annual report it had accumulated $5.8 billion of foreign-earned profits that were "indefinitely invested" overseas.

Had the New York-based financial-services giant brought those earnings back at the 35 percent U.S. corporate tax rate, it would have added $1.8 billion to its tax bill.

-- Lingling Wei